The federal GST rebate for renovations and new houses - Election issue

Since we are in the midst of an election, and since I live in a riding where there seems to be no shortage of homes being renovated or replaced, I thought it would be timely to repost an article that I wrote last year about the federal GST refund program for new or renovated homes (or lack thereof).  It would be nice if this program could be amended to better reflect the cost of homes now.

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If you substantially renovate your home or build a new one you may be eligible to receive a rebate of up to 36% of the GST you paid on goods and services to undertake the renovation.

Don't get too excited, however. There are conditions in place that effectively ensure most Ottawa home owners will be unable to claim this rebate.

First of all, you must substantially renovate your house. That means you must remove or replace at least 90% of the habitable interior. Basically, you would have to be undertaking a complete gut of the house, replacing all of the walls, electrical, plumbing and HVAC to qualify. You do not need to remove or replace foundation, roof or exterior walls to qualify, but if you do, they can count toward the 90%. Unfinished basements do not count as part of the habitable area for the purposes of calculating the percentage substantially renovated. If you basically tear down the existing house and build a new one, then you will also be eligible.

Second, the fair-market value of the house, which includes both the substantially renovated building and the land, must be less than $350,000 to receive a full rebate (i.e. 36% of the GST you paid). It's the fair-market value that is important here, not the cost of construction. If the fair-market value of the house exceeds $450,000 then you are not entitled to any rebate at all. And, if the value lies between $350,000 and $450,000 there is a formula to calculate the proportion of the rebate you are eligible for, which decreases to zero as the fair-market value approaches $450,000.

Unfortunately, the majority of Ottawa residents will never be able to qualify for the full rebate, if indeed they qualify for any rebate at all. You see, by the end of March 2010, the average price for a residential property in Ottawa (not including condominiums) was $354,698. With some exceptions, such as on the outskirts of Ottawa, it is hard to imagine the fair-market value of any substantially renovated or rebuilt house in Ottawa being less than $350,000.

If you are a condo owner, you might have better luck. The average price of a condominium in Ottawa in March 2010 was $240,409. That gives you some room, particularly if your condo is less than 1000 square feet. With average renovation costs running at about $100 per square foot, you could renovate 900 square feet of a 1000 square foot condo for about $90,000. If the pre-renovation value was $240,000, the completed fair-market value might still be below $350,000, entitling you to a full rebate (note that a full rebate is still only 36% of the GST paid).

Unfortunately, if you are reading this blog post from any other major centre in Canada, except Montreal, you have even less chance of qualifying for a rebate. That's because the average residential house price is higher in those centres - up to $800,341 in Vancouver, $471,269 in Calgary and $434,696 in Toronto. Residents of these cities have almost no chance of qualifying for any GST rebate.

To find out more about the rebate program (or lack thereof), check out Substantial Renovations and the GST/HST New Housing Rebate Guide.

Getting a rebate on the provincial portion of the HST paid on your renovations in Ontario

As I mentioned in my previous post, many Ottawa home owners will not be able to claim the GST rebate offered when a home is substantially renovated or built new. That's because in many cases, it is unlikely that the new or substantially renovated home will be valued at less than $350,000 - the threshold to receive the full rebate from the federal government.
Fortunately, the provincial government is more realistic in its rebate program and starting July 1, 2010 all Ottawa home owners will be able to claim at least part of the provincial portion of the HST they paid to substantially renovate their home.

Unlike the federal program, the provincial program is based on the amount of money you spend to renovate, not the final value of the renovated house and land. The amount you receive depends on whether you paid HST on the purchase of the land.

Where the provincial component of the HST was paid on the land, an individual would be entitled to a new housing rebate of 75 per cent of the provincial component of the HST paid on qualifying construction expenses (including land), up to a maximum rebate amount of $24,000. Owner-built homes with qualifying construction expenses over $400,000 would qualify for the maximum rebate amount of $24,000.

Where the provincial component of the HST was not paid on the land, an individual would be entitled to a new housing rebate of 75 per cent of the provincial component of the HST paid on qualifying construction expenses (not including the land), up to a maximum rebate amount of $16,080 (i.e., 67 per cent of the maximum housing rebate of $24,000).

Here's how it breaks down for a renovation of up to $500,000.

Reno Cost PST paid Rebate Effective PST

$100,000 $8,000 $6,000 2.0%

$200,000 $16,000 $12,000 2.0%

$300,000 $24,000 $16,080 2.6%

$400,000 $32,000 $16,080 4.0%

$500,000 $40,000 $16,080 4.8%

That's good news for home owners renovating in Ontario.

For more information on this program check out Harmonized Sales Tax Information Notice 4 on the Ontario Ministry of Revenue website.

Getting a GST rebate on your renovation costs

If you substantially renovate your home or build a new one you may be eligible to receive a rebate of up to 36% of the GST you paid on goods and services to undertake the renovation.

Don't get too excited, however. There are conditions in place that effectively ensure most Ottawa home owners will be unable to claim this rebate.

First of all, you must substantially renovate your house. That means you must remove or replace at least 90% of the habitable interior. Basically, you would have to be undertaking a complete gut of the house, replacing all of the walls, electrical, plumbing and HVAC to qualify. You do not need to remove or replace foundation, roof or exterior walls to qualify, but if you do, they can count toward the 90%. Unfinished basements do not count as part of the habitable area for the purposes of calculating the percentage substantially renovated. If you basically tear down the existing house and build a new one, then you will also be eligible.

Second, the fair-market value of the house, which includes both the substantially renovated building and the land, must be less than $350,000 to receive a full rebate (i.e. 36% of the GST you paid). It's the fair-market value that is important here, not the cost of construction. If the fair-market value of the house exceeds $450,000 then you are not entitled to any rebate at all. And, if the value lies between $350,000 and $450,000 there is a formula to calculate the proportion of the rebate you are eligible for, which decreases to zero as the fair-market value approaches $450,000.

Unfortunately, the majority of Ottawa residents will never be able to qualify for the full rebate, if indeed they qualify for any rebate at all. You see, by the end of March 2010, the average price for a residential property in Ottawa (not including condominiums) was $354,698. With some exceptions, such as on the outskirts of Ottawa, it is hard to imagine the fair-market value of any substantially renovated or rebuilt house in Ottawa being less than $350,000.

If you are a condo owner, you might have better luck. The average price of a condominium in Ottawa in March 2010 was $240,409. That gives you some room, particularly if your condo is less than 1000 square feet. With average renovation costs running at about $100 per square foot, you could renovate 900 square feet of a 1000 square foot condo for about $90,000. If the pre-renovation value was $240,000, the completed fair-market value might still be below $350,000, entitling you to a full rebate (note that a full rebate is still only 36% of the GST paid).

Unfortunately, if you are reading this blog post from any other major centre in Canada, except Montreal, you have even less chance of qualifying for a rebate. That's because the average residential house price is higher in those centres - up to $800,341 in Vancouver, $471,269 in Calgary and $434,696 in Toronto. Residents of these cities have almost no chance of qualifying for any GST rebate.

To find out more about the rebate program (or lack thereof), check out Substantial Renovations and the GST/HST New Housing Rebate Guide.

Wishful thinking - no extension for the Home Renovation Tax Credit

Despite the rumours that the Government of Canada's Home Renovation Tax Credit would be extended into the new year, the Globe and Mail is reporting that the government has said it intends to let the credit expire at the end of January.

Well, there may be hope yet. My guess is that if, for some reason, an election is called in the first few months of the year, we may see the Home Renovation Tax Credit resurface as an election pledge. And with the most recent polls putting the Liberals and the Conservatives tied for voter support, an election may not be out of the question.

Renovation Tax Credit may be extended into 2010

If you follow the political news, you may have heard Finance Minister, Jim Flaherty, say in November that the government's plan was to end the popular renovation tax credit in December 2009. Under the program, Canadians were eligible for a maximum $1,350 federal tax credit if they spend up to $10,000 on home renovations. Unfortunately for us, we have not yet started any home renovations, so it looked like we were going to miss out on the credit.

However, in a recent blog post, Globe and Mail columnist Jane Taber ruminated that the credit could be extended into next year. If so yeah for us.

On a related note, one commenter on Taber's blog noted that if the tax credit is extended, make sure you take photocopies of your receipts. Many stores still use thermal paper to print receipts, and these fade after a short while. If you simply stick the receipts in an envelope until you do your taxes next year, there may be no printing left on the receipt to read or submit to the taxman!